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The macroeconomic environment in the Philippines has been subject to has been full of ups and downs, with ever-changing dynamics that have increased the volatility in most industries—apart from the property industry, of course. That is to say, the property market in Metro Manila, specifically, has been fast-growing and expanding amid a slowdown in GDP, cooling inflation, lower interest rates, and RRR cuts.
Office Property Market to Continue Reaching Record Highs
As reported by Jones Lang Lasalle (JLL), a total of 156,100 sqm of new office supply was added to the market just from the second quarter of 2019 (2Q19), mostly coming from Makati City and Quezon City. For the rest of the year, the industry is expected to deliver 943,200 sqm more to the current stock, effectively recording yet another peak in office supply. Additionally, JLL also noted that out of the existing 8.1 million sqm of office supply, Taguig City (27%) and Makati City (20%) house majority of the Grade A office supply in the Metropolis. This is, of course, at the back of having the most prominent business districts in Metro Manila located in Makati CBD and Bonifacio Global City. Among this, Ayala Land, Inc. leads the developer share for both existing (14%) and upcoming (23%) Grade A office supply, due to the developer’s large footprint in the established CBDs.
Vacancy rates stood at 6% for Metro Manila as a whole, dragged up by Quezon City’s high vacancies in buildings located in the fringe areas. Still, Paranaque City remained at zero vacancy—largely due to the increasingly high demand for office space in the esteemed Bay City. On the other hand, the average pre-commitment rate of Metro Manila was recorded at around 33%, with Taguig City hitting the highest rate due to several fully pre-committed buildings such as Worldwide Plaza.
Demand-wise, JLL noted that the office segment is still being pushed up mainly by the Offshoring and Outsourcing sector. Following this, online gaming is also a major driver of takeup, aside from the pharmaceutical companies. With that said, Makati still leads the rents for existing supply, while Taguig City has the highest asking rate for upcoming office developments.
Growth Momentum for Residential Property Market
Of course, not one to lag behind is the residential property market. With a total of 2,100 units introduced to the market in 2Q19 and a total supply of 367,300 units as of end-June, the real estate segment has been booming since. The latter half of the year is expected to deliver around 35,500 units more, in fact, should there be no construction delays. According to JLL, Makati City and Quezon City are home to majority of both existing and future condominium supply. However, growth is most noticeable in Pasay City in the next three years due to the uptick of investments in the Bay City. SM Development Corporation, furthermore, is the developer with the largest share of existing and upcoming supply since it I the lead contributor in various cities.
JLL further reports that the average vacancy rate in Metro Manila as of 2Q19 was recorded at 2%, with Pasay City and Paranaque City dragging down the rate due to online gaming tenants, while employees and students drive the leasing activities in Makati City and Quezon City. During the same period, a solid preselling market in Metro Manila was observed—evident from high sales take-up figures of future developments. Consequently, selling prices have been growing at a fast pace, as Makati City commands the highest prices for supply—while prices in Paranaque City have continuously gone up, due to the large interest in Bay City.
Booming Hospitality Property Market, Despite Sluggish Retail
On the flipside, a total of 88,200 sqm of retail space was introduced to the market during 2Q19, due to the completion and expansion of shopping malls located in Quezon City. Annual supply for the retail segment is expected to slow down after 2019, as 2022 is not yet expecting delivery of new supply to date. Despite this, JLL sees demand for retail space in Metro Manila to remain healthy, evidenced by low vacancy rates amongst retail establishments, particularly in Quezon City and Taguig City. Its main demand drivers remain to be F&B brands, Fashion brands, and Skincare brands.
Lastly, hotel supply is expected to boom during the latter half of 2019, recording an annual peak. While most of the existing stock comes from Makati City, the upcoming supply will mostly be coming from Bay City in Paranaque. Outlook for this particular sector remains steady, with demand from foreign and local tourists at the forefront in pushing down hotel vacancy rates. Aside from this, JLL also mentioned the MICE (Meetings, Incentives, Conventions, and Exhibition) market and Gaming as the next two demand drivers that could drive up occupancy rates.
